Linamar looks to triple sales by 2020

Linamar Corp., the third-best performing auto-parts stock in the past year, says the biggest obstacle to its goal of tripling revenue and boosting profit sevenfold is finding skilled workers willing to earn $80,000 a year.

Chief executive officer Linda Hasenfratz, 46, says she can “absolutely” reach $10 billion in revenue and $1 billion profit by 2020. The company supplies cylinder blocks and cam shafts to automakers, who are shifting engine and transmission work to vendors, and is winning more business in Europe and Asia.

The challenge will be finding the people able to do those jobs, including machinists, millwrights, electricians, engineers and accountants, said Hasenfratz, the only female CEO of a publicly traded auto-parts supplier in North America. The hunt has taken the Guelph-based company to the Philippines, where it hired about 50 skilled journeymen who started work in Canada last year.

“The bigger risk to us to meet our plans is our ability to find and develop the people we need,” Hasenfratz said. She estimates annual hiring needs would be comparable to the company’s sales growth. “You can’t underestimate the human capital you need to pull off 10 to 15 per cent growth a year.”

Linamar, which has Ford Motor Co. as its biggest customer with 31 per cent of sales, will post record revenue and profit of $3.25 billion and $146.5 million respectively in 2012, according to analysts’ estimates compiled by Bloomberg. It would be Linamar’s second straight year of record sales.

Linamar’s sales and profit goals are “realistic and very achievable,” Dennis DesRosiers, president of DesRosiers Automotive Consultants in Richmond Hill, Ont., said in an interview. The company should be able to find workers to fuel growth, he said.

Advanced manufacturing is among the occupations facing a shortage of skilled labourers in Canada, along with health related occupations, the mining industry and business services, according to a Dec. 3 report by Benjamin Tal, an economist with the Canadian Imperial Bank of Commerce.

Unemployment in those fields has dropped to about 1 per cent and wages have risen at an average annual rate of 3.9 per cent, more than double the rate for the economy as a whole, the report said. The day the report was released Canadian Finance Minister Jim Flaherty said shortages of skilled labour in some sectors was a “serious” issue.

Linamar, which employs 16,772 people, has 352 employees in apprentice programs studying to be electricians and millwrights. Linamar’s average pay in Canada for those positions is about $80,000, Hasenfratz said. The company hired 1,000 people in 2012.

“In Germany, there’s keen regard for people who have a skilled trade,” she said. “In North America, I find we don’t encourage our kids to go down that path. Maybe there’s a lack of understanding about the earning potential and the promotion potential for those positions.”

They’ve also selected about 250 people globally for a five-year management training program, a formal version of the one Hasenfratz began in 1990, when she joined the company her father, Frank, founded 24 years before. More than 60 per cent of the people who run Linamar’s factories began their careers on the shop floor, she said. Plant manager jobs pay as much as $200,000, she said.

The company is concentrated on North America, which made up 78 per cent of sales in 2011. Asia made up 3 per cent of sales. Hasenfratz said by 2020, sales outside North America should comprise half of Linamar’s revenue, split between Europe and Asia.

Linamar sees potential in automakers’ demand in North America, while forecasting more slowing in Europe. Automakers there are lowering output to match demand. While Europe could be down as much as 5 per cent this year, the U.S. market could increase 3 per cent to 5 per cent, Hasenfratz said.

Researcher IHS Automotive is forecasting light vehicle production of 15.9 million in North America, a 2.9 per cent increase over 2012. In Europe, IHS forecasts production of 18.6 million, a 3.1 per cent decline.

“As we get through these hurdles and get some clarity, people will feel more confident making decisions around where they want to invest,” Hasenfratz said. “I think there could be a little burst to economic activity.”

Linamar, which also makes cylinder heads, gears and other engine and transmission parts, has gained business as automakers have outsourced powertrain-parts production. Ford, Fiat SpA, General Motors Co. and Caterpillar Inc., make up 63 per cent of sales. Linamar is also selling more to Volkswagen AG.

About 20 per cent of engine and transmission parts are made by suppliers, she said. That figure could rise to 40 per cent by 2020, a $160 billion segment of the industry that alone could provide the sales needed to reach $10 billion, she said. Japanese automakers are also starting to warm to the idea of hiring suppliers to make those components, Hasenfratz said.

That forecast may even be conservative, DesRosiers says. Production of engine and transmission parts are among the last component groups still built by automakers, he said.

“Vehicle companies are so wrapped up just trying to manage their vehicles that they’re less and less interested trying to hold onto some of their component areas,” he said. “So Linamar is in a win-win-win situation.”